886D.2553/12–2054
No. 378
Memorandum of Telephone Conversation, by
the Chief of the Petroleum Policy Staff (Eakens)
Subject:
- Kuwait Payments Problem
Participants:
- Mr. R. O. Rhoades, Vice President, Gulf Oil Corporation, Pittsburgh, Pa.
- Mr. Eakens—PED
I telephoned Mr. Rhoades to inquire about the status of Gulf’s talks with Mr. Basil Jackson, a director of The British Petroleum Company, Ltd., or BP (formerly Anglo-Iranian Oil Company, Ltd.), who is now in the United States discussing with Gulf the negotiations which the two companies are going to have with the Shaikh of Kuwait on the latter’s request for an upward revision in payments. Gulf and BP are equal partners in the oil concession in Kuwait.
The main new development which Mr. Rhoades mentioned was the meeting held in London on this question by the Foreign Office [Page 872] on December 10. Apparently the Foreign Office called the meeting with officials of Kuwait Oil Company, Gulf, and BP to make two points. One was that the companies would be well advised to take the initiative in starting the negotiations with the Shaikh on the payments question, and on this point the Foreign Office left no doubt that it wished to see the Shaikh receive payments on a substantially comparable basis with other areas in the Middle East. The Foreign Office believes that if the companies delay their negotiations until after the Aramco settlement is finalized, they run greater risk that they will be forced to accept the Aramco formula, which would be a 50/50 settlement with the Shaikh on the basis of posted prices in the Persian Gulf less 2 per cent. The other point was a complaint about the local representative of the Kuwait Oil Company, a Mr. Dixon, not being in a position to keep the Shaikh informed about oil development in other Middle East countries.
On the latter, Mr. Rhoades said that Dixon was being maintained at the pleasure of the Shaikh as liaison officer with the Shaikh by the Kuwait Oil Company. Mr. Dixon functions on very local matters such labor and personnel relations and serves as interpreter for the General Manager of the Kuwait Oil Company when the latter calls on the Shaikh. He does not function on major policy questions such as those involved in the Kuwait payments problem. Mr. Rhoades simply did not consider that it was a function of the Kuwait Oil Company to keep the Shaikh informed about oil developments in other Middle East countries and elsewhere.
In the discussions with Mr. Jackson, Gulf and BP are talking as two partners in the operation in regard to the best way to approach the problem of dealing with the Shaikh in regard to a revision of payments. In the talk which Gulf had had with Mr. Jackson on December 13, Gulf and the BP were in disagreement on two very significant points. BP has always paid the Shaikh on the basis of Gulf’s actual realization from sales of Kuwait oil. BP’s stated reason for this was to prevent different payments from being made to the Shaikh by the two companies per barrel of oil sold, which BP considered of extreme importance. This has been and continues to be a cardinal point of principle with BP. Mr. Rhoades thinks this is because Sir William Fraser, the chairman of BP, never changes once he has taken a position on any question. Gulf does not agree with BP that the two companies have to settle with the Shaikh on exactly the same basis per barrel of oil sold. There are other cases in which different owners of the same company settle with a government on different bases even though the oil is produced by the same operating company. Gulf cited to Mr. Jackson as an example of this the Mene Grande Oil Company in Venezuela which has [Page 873] both British and American ownership. Mr. Jackson’s only comment was that Venezuela is a developed country whereas Kuwait is not.
On the other question, that of price adjustments, BP seems to wish to go to full posted prices for purposes of settling with the Shaikh. Gulf, on the other hand, has strictly adhered to a true 50/50 division of profits with the Shaikh on its actual sales prices. It considers this fair and in the best interests of both itself and the Shaikh and does not see how it could go to full posted prices on all crude sales.
It was agreed in the meeting with Mr. Jackson on December 13 that the two companies would reexamine their positions and discuss the matter again on December 20. Gulf was therefore expecting to hear from Jackson again today.
I took the opportunity of inquiring of Mr. Rhoades whether Gulf was under any impression that the objective of the British was to squeeze Gulf out of Kuwait. His reply was, “None whatever.” He went on to say that Gulf’s relationships with the British Government have been very good and that he could not believe that that’s the case. He thought that the real problem Gulf is up against is the stubbornness of Sir William Fraser.
He went on to comment, however, that Gulf is concerned about an attitude recently expressed by the British Foreign Office. This was that Gulf was taking too serious a view of the sanctity of contracts. The comments of the Foreign Office official suggested that the strong idea held by Gulf regarding the sanctity of contracts was more or less out of date.
In closing, I told Mr. Rhoades that the Department was very interested in being kept informed regarding developments in their discussions with BP and that it would be appreciated if he would let us know about further developments. This he agreed to do.
- This memorandum was prepared on Dec. 28.↩